Carney’s reaffirms forward guidance

Mark Carney’s first speech as Bank
of England governor may have departed in tone from his predecessor,
with references to modern popular culture (Jake Bugg was eluded to)
but the ability of the incumbent to influence on the Pound remains
very much the same as Lord King. Sterling was reacting to his every
word. Mr Carney was attempting to hammer home the key points of
forward guidance. He reiterated rates will remain low for a long
time. Unemployment hitting the threshold of seven per cent will not
automatically trigger rate rises. The US recovery is further along
than the UK which in our opinion will be the most crucial
development. Can UK interest rates remain low as US rates rise as
the recovery continues? Mr Carney suggested the MPC stands ready to
launch further stimulus should the market implied path of interest
rates diverge from the BoE’s desired path.

UK high street sales also beat
expectations according to data released yesterday, but the news was
almost completely ignored by traders concentrating on Mr Carney’s
speech in Nottingham. The Pound has held onto the gains yesterday,
after early trading was dominated by Dollar strength on the
impending announcements on Syria. At this stage it looks like
Sunday before we see any concrete proposals which has released
slightly the risk-off pressure building in the markets.

Today’s key data is German
unemployment, which came in bang on expectations of 6.8% which has
moved the Euro very little. This afternoon US initial jobless
claims is due along with the second estimate for US GDP for Q2.